{"id":1867,"date":"2025-03-20T10:43:25","date_gmt":"2025-03-20T10:43:25","guid":{"rendered":"https:\/\/leyton.majjane.agency\/uk\/insights\/articles\/how-the-changes-to-subcontracted-rd-expenditure-guidelines-affect-sme-scheme-claims\/"},"modified":"2026-07-26T19:02:06","modified_gmt":"2026-07-26T17:02:06","slug":"how-the-changes-to-subcontracted-rd-expenditure-guidelines-affect-sme-scheme-claims","status":"publish","type":"article","link":"https:\/\/leyton.com\/uk\/insights\/articles\/how-the-changes-to-subcontracted-rd-expenditure-guidelines-affect-sme-scheme-claims\/","title":{"rendered":"How the changes to subcontracted R&D expenditure guidelines affect SME scheme claims"},"content":{"rendered":"\t\t
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Following a ruling by the First-tier Tribunal (FTT), which settles legal disputes on tax and other matters related to government, HMRC has been forced to clarify the guidance for SMEs claiming R&D tax relief<\/a> on \u2018contracted out\u2019 and \u2018subsidised expenditure\u2019.<\/p>\n\n\n\n

You can read more on the specific court case in our article, HMRC court case: Impact on your R&D claim<\/a>. In a nutshell, it\u2019s good news for innovative SMEs.<\/p>\n\n\n\n

HMRC had attempted to deny relief to an SME scheme<\/a> claimant, arguing that because their R&D activities had taken place as part of a commercial contract, the work should be considered as contracted out and subsidised, making it ineligible for relief.<\/p>\n\n\n\n

The FTT disagreed, and HMRC decided not to appeal. Instead, they\u2019ve updated the Corporate Intangibles Research and Development manual (CIRD) to provide greater clarity on what should and shouldn\u2019t be defined as subcontracted R&D. In practice, this opens the door for relief claims where R&D has happened that was incidental to a commercial contract.<\/p>\n\n\n\n

This will be of particular relief to any companies facing HMRC enquiries for this very reason, as there is now a much stronger basis for similar claims to be accepted.<\/p>\n\n\n\n

Here, we explain how the clarified guidelines for subcontracted R&D expenditure affect SME scheme claims.<\/p>\n\n\n\n

Guidelines for activities contracted to SMES<\/h2>\n\n\n\n

If a company outsources its R&D activities to a subcontractor, it\u2019s generally only the customer (i.e., the company requesting the work) that\u2019s eligible to claim for the expenditure. This rule is designed to prevent \u2018double dipping\u2019, where both the customer and the subcontractor claim for the same R&D expenditure.<\/p>\n\n\n\n

There are, however, certain circumstances where the subcontractor can<\/em> claim for R&D tax relief \u2013 even when fulfilling a commercial contract. For instance, if the subcontractor undertook R&D under its own initiative as a way of improving its ability to fulfil a contract, then they can likely make a claim. <\/p>\n\n\n\n


The key here is that a \u2018commercial contract\u2019 doesn\u2019t automatically mean that R&D has been subcontracted; it depends on if the client explicitly requested the R&D or if it\u2019s likely that R&D would be needed for the work to be delivered. There are four factors can help to determine whether or not this was the case:<\/p>\n\n\n\n